Income and Wealth Inequality

Nicholas Bloom

Raj Chetty

Emmanuel Saez

Leaders: Nicholas Bloom, Raj Chetty, Emmanuel Saez

The CPI is home to some of the country’s most influential analyses of the income and wealth distribution. The purpose of the Income and Wealth RG is to monitor the ongoing takeoff in income inequality, to better understand its sources, and to analyze its implications for labor market performance, educational attainment, mobility, and more. The following is a sampling of the CPI’s research projects within this area.

Trends in income and wealth inequality: What are the key trends in U.S. income and wealth inequality? The U.S. increasingly looks to Emmanuel Saez and his research team for the latest data on U.S. economic inequality.

Distributional National Accounts: In an ambitious infrastructural project, Emmanuel Saez and his team are building a “Distributional National Accounts” based on tax returns, a data set that will eliminate the current gap between (a) national accounts data based on economic aggregates and (b) inequality analysis that uses micro-level tax data to examine the distribution of income but is not consistent with national aggregates. This new data set will in turn make it possible to evaluate the extent to which economic growth, which has long been represented as a preferred poverty-reduction approach, is indeed delivering on that objective.

The rise of between-firm inequality: How much of the rise in earnings inequality can be attributed to increasing between-firm dispersion in the average wages they pay? This question can be addressed by constructing a matched employer-employee data set for the United States using administrative records.

Rent and inequality: It is increasingly fashionable to argue that “rent” accounts for much of the takeoff in income inequality. The Current Population Survey can be used to assess whether this claim is on the mark.

Featured Examples

Click on the active buttons for a full listing of all the important policy analysis, basic research, or journalism addressing this key issue. Also explore our working papers addressing this key issue and our affiliates with expertise in this key issue.

Can We Finish the Revolution? Gender, Work-Family Ideals, and Institutional Constraint

Why has progress toward gender equality in the workplace and at home stalled in recent decades? A growing body of scholarship suggests that persistently gendered workplace norms and policies limit men’s and women’s ability to create gender egalitarian relationships at home. In this article, we build on and extend prior research by examining the extent to which institutional constraints, including workplace policies, affect young, unmarried men’s and women’s preferences for their future work-family arrangements. We also examine how these effects vary across education levels. Drawing on original survey-experimental data, we ask respondents how they would like to structure their future relationships while experimentally manipulating the degree of institutional constraint under which they state their preferences. Two clear patterns emerge. First, as constraints are removed and men and women can opt for an egalitarian relationship, the majority choose this option, regardless of gender or education level. Second, women’s relationship structure preferences are more responsive than men’s to the removal of institutional constraints through supportive work-family policy interventions. These findings shed light on important questions about the role of institutions in shaping work-family preferences, underscoring the notion that seemingly gender-traditional work-family decisions are largely contingent on the constraints of current workplaces.

Teacher Quality Policy When Supply Matters

Teacher contracts that condition pay and retention on demonstrated performance can improve selection into and out of teaching. I study alternative contracts in a simulated teacher labor market that incorporates dynamic self-selection and Bayesian learning. Bonus policies create only modest incentives and thus have small effects on selection. Reductions in tenure rates can have larger effects, but must be accompanied by substantial salary increases; elimination of tenure confers little additional benefit unless firing rates are extremely high. Benefits of both bonus and tenure policies exceed costs, though optimal policies are sensitive to labor market parameters about which little is known.

Feeling at Home in College: Fortifying School-Relevant Selves to Reduce Social Class Disparities in Higher Education

Social class disparities in higher education between working-class students (i.e., students who are low income and/or do not have parents with four-year college degrees) and middle-class students (i.e., students who are high income and/or have at least one parent with a four year-degree) are on the rise. There is an urgent need for interventions, or changes to universities' ideas and practices, to increase working-class students' access to and performance in higher education. The current article identifies key factors that characterize successful interventions aimed at reducing social class disparities, and proposes additional interventions that have the potential to improve working-class students' chances of college success. As we propose in the article, effective interventions must first address key individual and structural factors that can create barriers to students' college success. At the same time, interventions should also fortify school-relevant selves, or increase students' sense that the pursuit of a college degree is central to “who I am.” When students experience this strong connection between their selves and what it means to attend and perform well in college, they will gain a sense that they fit in the academic environment and will be empowered to do what it takes to succeed there.

Systematic Assessment of the Correlations of Household Income With Infectious, Biochemical, Physiological, and Environmental Factors in the United States, 1999–2006

A fuller understanding of the social epidemiology of disease requires an extended description of the relationships between social factors and health indicators in a systematic manner. In the present study, we investigated the correlations between income and 330 indicators of physiological, biochemical, and environmental health in participants in the US National Health and Nutrition Examination Survey (NHANES) (1999–2006). We combined data from 3 survey waves (n = 249–23,649 for various indicators) to search for linear and nonlinear (quadratic) correlates of income, and we validated significant (P < 0.00015) correlations in an independent testing data set (n = 255–7,855). We validated 66 out of 330 factors, including infectious (e.g., hepatitis A), biochemical (e.g., carotenoids, high-density lipoprotein cholesterol), physiological (e.g., upper leg length), and environmental (e.g., lead, cotinine) measures. We found only a modest amount of association modification by age, race/ethnicity, and gender, and there was no association modification for blacks. The present study is descriptive, not causal. We have shown in our systematic investigation the crucial place income has in relation to health risk factors. Future research can use these correlations to better inform theory and studies of pathways to disease, as well as utilize these findings to understand when confounding by income is most likely to introduce bias.

The short-term impacts of Earned Income Tax Credit disbursement on health

Background: There are conflicting findings regarding long- and short-term effects of income on health. Whereas higher average income is associated with better health, there is evidence that health behaviours worsen in the short-term following income receipt. Prior studies revealing such negative short-term effects of income receipt focus on specific subpopulations and examine a limited set of health outcomes.

Methods: The United States Earned Income Tax Credit (EITC) is an income supplement tied to work, and is the largest poverty reduction programme in the USA. We utilize the fact that EITC recipients typically receive large cash transfers in the months of February, March and April, in order to examine associated changes in health outcomes that can fluctuate on a monthly basis. We examine associations with 30 outcomes in the categories of diet, food security, health behaviours, cardiovascular biomarkers, metabolic biomarkers and infection and immunity among 6925 individuals from the U.S. National Health and Nutrition Survey. Our research design approximates a natural experiment, since whether individuals were sampled during treatment or non-treatment months is independent of social, demographic and health characteristics that do not vary with time.

Results: There are both beneficial and detrimental short-term impacts of income receipt. Although there are detrimental impacts on metabolic factors among women, most other impacts are beneficial, including those for food security, smoking and trying to lose weight.

Conclusions: The short-term impacts of EITC income receipt are not universally health promoting, but on balance there are more health benefits than detriments.

Lost Generations? Wealth Among Young Americans

Despite the Great Recession and the fragile economic recovery, the wealth of Americans has grown significantly when a longer-term view is considered. Average household wealth approximately doubled from 1983 to 2010, and average incomes rose similarly. For many, the American dream of working hard, saving more, and becoming wealthier than one's parents holds true.

How Much Protection Does a College Degree Afford? The Impact of the Recession on Recent College Graduates

Past research from Pew’s Economic Mobility Project has shown the power of a college education to both promote upward mobility and prevent downward mobility. The chances of moving from the bottom of the family income ladder all the way to the top are three times greater for someone with a college degree than for someone without one. Moreover, when compared with their less-credentialed counterparts, college graduates have been able to count on much higher earnings and lower unemployment rates. Even during the Great Recession, college graduates maintained higher rates of employment and higher earnings compared with less educated adults. However, the question of how recent college graduates have fared has remained largely unexamined, and many in the popular media have suggested that the advantageous market situation of college graduates is beginning to unravel under the pressure of the economic downturn. This study examines whether a college degree protected these recent graduates from a range of poor employment outcomes during the recession, including unemployment, low-skill jobs, and lesser wages.

Identifying the Disadvantaged: Official Poverty, Consumption Poverty, and the New Supplemental Poverty Measure

We discuss poverty measurement, focusing on two alternatives to the current official measure: consumption poverty, and the Census Bureau's new Supplemental Poverty Measure (SPM) that was released for the first time last year. The SPM has advantages over the official poverty measure, including a more defensible adjustment for family size and composition, an expanded definition of the family unit that includes cohabitors, and a definition of income that is conceptually closer to resources available for consumption. The SPM's definition of income, though conceptually broader than pre-tax money income, is difficult to implement given available data and their accuracy. Furthermore, income data do not capture consumption out of savings and tangible assets such as houses and cars. A consumption-based measure has similar advantages but fewer disadvantages. We compare those added to and dropped from the poverty rolls by the alternative measures relative to the current official measure. We find that the SPM adds to poverty individuals who are more likely to be college graduates, own a home and a car, live in a larger housing unit, have air conditioning, health insurance, and substantial assets, and have other more favorable characteristics than those who are dropped from poverty. Meanwhile, we find that a consumption measure compared to the official measure or the SPM adds to the poverty rolls individuals who are more disadvantaged than those who are dropped. We decompose the differences between the SPM and official poverty and find that the most problematic aspect of the SPM is the subtraction of medical out-of-pocket expenses from SPM income. Also, because the SPM poverty thresholds change in an odd way over time, it will be hard to determine if changes in poverty are due to changes in income or changes in thresholds. Our results present strong evidence that a consumption-based poverty measure is preferable to both the official income-based poverty measure and to the Supplemental Poverty Measure for determining who are the most disadvantaged.

The Material Well-Being of the Poor and the Middle Class Since 1980

In this paper, we provide a more accurate assessment of how the material circumstances of the middle class and the poor have changed over the past three decades. We consider several different measures of material well-being. We examine how improved measures of income, which better reflect the resources families have to consume, have changed between 1980 and 2009 for the middle class and the poor, accounting for the overstatement of inflation in standard price indices. Similarly, we analyze patterns of family consumption, which our research suggests is a better indicator of economic well-being than family income. For both middle-class and poor families, we also examine independent indicators of well-being such as housing and car characteristics.

Further Results on Measuring the Well-being of the Poor Using Income and Consumption

We evaluate the relative merits of income- and consumption-based measures of well-being. Our results provide evidence that consumption better captures well-being for those with few resources. The bottom deciles of expenditures exceed those of income, suggesting under-reporting of income. The under-reporting rate for government transfers is high and rising. Overall non-response is more severe in U.S. income data than in expenditure data. Furthermore, a consumption data set requires fewer observations than an income data set to obtain the same level of precision for typical estimates. Finally, very low consumption is more strongly related to other bad outcomes than very low income.